How many options should I give to the first non-founder employees of they are making below market but non-zero salaries?
Here’s the tough part.
It’s really hard.
What you should do is give them say 3x their forgone salary in stock — 3x to account for risk. So let’s say you hire a seasoned engineer in the Bay Area and her salary ‘should’ be $120k, but she works for you for $60k instead. You should try to give her $60k x 3 = $180k in stock for each year she works for you.
But the problem is, it won’t fit in your valuation.
If you are early stage, let’s say your nominal valuation is $2m. That would mean giving her 10% of the company each year!
So … you can’t do what makes any true short-term economic sense.
But that’s not what start-ups are all about. They aren’t about the short-term.
So generally, I come back to the same rule. Pick how much equity she would have if she joined in a year or so. And try to triple it — if you can.